Business safe in personal bankruptcy

Dear Bankruptcy Adviser,
If we file for bankruptcy, will it also affect our business? We want to file bankruptcy for our personal credit card mess and doctor bills. Can one choose what goes in a bankruptcy? Do we have any say? This is a scary time for us.
-- Carol

Dear Carol,
You can file for personal bankruptcy and keep your business active. This is very common, but there are a few issues to keep in mind. While these issues might not pertain to your situation, they are important.

Disclaimer: It is impossible to give a generic answer to this question. However, here are a few things to consider.

Don't leave the business out of your bankruptcy paperwork.

You will have to disclose your business when filing for personal bankruptcy. You have no choice because it is an asset. However, this does not mean you will lose the business. While the business is a personal asset, it might not have any value to anyone but you. While you may know the business has limited value, the person assigned to your bankruptcy case -- called a trustee -- will need to be certain that no value exists.

The trustee's job is to find the assets that you cannot protect and sell them to pay your creditors.

Does your business have value?

Many people have small businesses in which the business value is based on the owner's best efforts, meaning your customers have hired you because of your expertise and service. Some businesses are easier to value. For example, a doctor's office may have a large patient base and a market might exist. But computer consultants are usually hired for their expertise, and the business value is based purely on the individual.

Does your business have valuable assets or inventory?

Most businesses do not have valuable assets or inventory. But it is possible that you have some value equipment/machines that are paid for in full. You must know the value of these assets prior to filing.

Will business creditors be very aggressive?

I have filed many cases for clients who have small sole proprietorships or corporations. Most of the time I do not need to file a bankruptcy for the business because the creditors will only pursue the individual personally. On occasion, a creditor will be very aggressive and try to seize business assets.

For example, if you have a car that is being paid for through the business, then you need to be careful. An aggressive creditor might try to seize that vehicle. Do not transfer the vehicle into someone else's name. Anything done to hinder or delay a creditor claim could be considered fraudulent, and the transfer could be voided.

Know your banks.

If you have a business credit card and checking accounts with the same bank, then it is possible for the bank to offset (aka take) the money in your checking account to pay the business credit card.

It is very likely for you to file personal bankruptcy and continue business as usual. Just be diligent to ensure you are not putting your business at risk prior to filing.

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